Green shoots? Industrial output grows 2.6%, retail inflation falls

India’s industrial output grew by 2.6% in July, expanding for the first time in three months, and retail inflation fell in August to 9.52% but analysts cautioned that it may too early to read these as the beginning of a sustained economic rebound.

The growth in the index of industrial production (IIP)—a gauge for measuring production in factories—was largely driven by an unexpected 15.6% jump in capital goods output in July from a contraction of 5.8% last year.

Retail inflation measured by the consumer price index (CPI), which captures shop-end prices, stood at 9.52% in August from 9.64% in July, but food inflation stood at a worrisome 11.06% driven by costly vegetables, data released on Thursday showed.

Expectedly, the government, battling to pull the economy out of a crippling slowdown, cheered the data.

“It's good news. I believe the phase of negative growth is coming to an end," said C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council.

Experts, however, said that corporate investment activity was still muted to suggest a definitive rebound in the economy, and a lot will depend on rise in rural incomes driven by normal monsoon.

“While a normal monsoon and consequent pick-up in rural incomes could push up consumption growth, a sustained revival of the manufacturing sector will be contingent on a pick-up in corporate investments,” Crisil, a credit rating agency said in research report.